July 29 (Bloomberg) -- A House committee yesterday approved
legislation that would legalize some Internet gambling, allowing
U.S. residents to place online wagers with companies the
Treasury Department has licensed.

The measure, sponsored by Representative Barney Frank,
chairman of the House Financial Services Committee, would roll
back a law designed to block such betting. That four-year-old
law, which took effect in June, bars banks from processing
payments to offshore gambling websites.

“My primary goal is Americans ought to be free to do what
they wish without this kind of intrusion,” said Frank, a
Massachusetts Democrat whose committee passed the legislation
41-22, with one lawmaker voting “present.”

“The intrusive regulation is a problem for the financial
institutions,” Frank said.

Frank and other proponents, such as the Poker Players
Alliance, say licensing and regulating online gambling will
protect consumers who are placing a growing number of bets with
offshore operators.

A separate measure that depends on full House passage of
Frank’s plan would impose taxes on online poker and other
Internet gambling, bringing the federal government as much as
$42 billion over 10 years, according to a congressional
analysis.

“This is money sitting on the table,” Michael Waxman, a
spokesman for the Washington-based Safe and Secure Internet
Gambling Initiative, said in an interview. The group represents
financial services companies such as U.K.-based payment
processor UC Group.

Bill’s Foes

Opponents of Frank’s bill included Representative Spencer
Bachus of Alabama, the top Republican on the Financial Services
Committee who said the gambling legalizing would harm society
and that Congress has more pressing issues to tackle.

Bachus has said the measure would “fleece” Americans by
removing restrictions on online gambling and exposing them to
“unwise and harmful financial choices.”

“With this bill, in one broad stroke, we will allow every
child in America to gamble on their home computer or in their
dorm room,” Bachus said.

Bachus says the revenue estimates for the proposed taxes on
gambling are bloated because they assume all states would
participate.

Amendments

The committee passed amendments to prohibit operators that
have violated U.S. laws from getting licenses and to ensure
betting on sports such as football isn’t allowed. The panel also
approved amendments to help prevent minors from gambling online
and prohibit advertising that targets youth.

Another amendment prohibits using credit cards to make
bets. Gamblers could use debit cards or prepaid accounts.

“I have opposed this bill for years, but I am slowly
changing, said Representative Brad Sherman, a California
Democrat. “The best reason for this bill is the prospect for
revenue.”

With both Democrats and Republicans supporting the bill in
yesterday’s committee vote, the bipartisan backing adds momentum
to the legislation, said John Pappas, executive director of the
Poker Players Alliance. The focus now shifts to the legislation
to tax the betting, which is before the House Ways and Means
Committee, he said.

Senate Measure

Senator Robert Menendez, a New Jersey Democrat, introduced
a bill in the Senate last year that would legalize fewer forms
of gambling, including poker. The House legislation “may be a
little too broad for the Senate to tackle,” said Pappas.

The U.S. offshore Internet gambling market is expected to
climb to $5.7 billion in 2010 from $5.4 billion last year,
according to U.K.-based H2 Gambling Capital, which supplies data
on the industry.

If the U.S. legalizes the gambling, the market could grow
to $24 billion in five years, according to H2. That excludes
most sports betting, which wouldn’t be allowed under House
proposals.

The global market now is about $30 billion.

The biggest offshore gambling sites for U.S. players
include PokerStars, based in Isle of Man, and Full Tilt Poker,
based in Ireland, according to H2.

Critics of the 2006 law designed to bar the wagers say it
makes no distinction between legal and illegal online betting.
Some states allow online betting on horse and dog racing, for
example.

Safeguards Required

Under Frank’s proposal, licensed gambling companies would
be required to have safeguards to protect against underage and
compulsive gambling and to prevent people from placing bets
online in states that prohibit it. Such oversight is designed to
protect consumers against fraud, identity theft and other
crimes.

The bill to tax online gambling is sponsored by
Representative Jim McDermott, a Washington Democrat and member
of the tax-writing Ways and Means Committee.

McDermott’s proposal would require Internet gambling
operators to pay a 2 percent tax to the federal government on
betting deposits and a 6 percent tax to states. The federal
treasury also would collect taxes on gaming-company profits, and
bettors would pay taxes on winnings.